New proposal aims to fund CPF investments and market development.
Singapore’s government has proposed increasing the issuance limit for government securities to $1.515 trillion, with the goal of supporting market development and meeting the growing investment needs of the Central Provident Fund (CPF). This motion was introduced in Parliament by Second Minister for Finance Chee Hong Tat on Nov 12.
Key Details of the Proposal
The proposed increase of $450 billion would extend the current $1.065 trillion limit, which was last raised in 2021. The new cap will be in place until 2029. More than 60% of the increase will be allocated to Special Singapore Government Securities (SSGS), which are non-marketable securities primarily issued for CPF investments. These investments ensure safe and reliable returns for CPF members.
The remaining 40% of the increase will be used for the issuance of Singapore Government Securities (SGS), Treasury bills (T-bills), and Singapore Savings Bonds (SSB) to develop a vibrant debt market and meet the growing demand for high-quality liquid assets.
CPF Investment and Growth Projections
CPF investments in SSGS are fully guaranteed by the government, providing assurance that the CPF Board can fulfill its obligations to members. With CPF balances expected to rise in the coming years due to wage growth and policy enhancements such as increased contribution rates for senior workers, additional issuance of SSGS will be necessary. From 2018 to 2023, the median gross monthly income grew by 3.2% annually, contributing to this expected increase in CPF balances.
Market Development and Debt Market Growth
The increase in government securities issuance will also support the development of a more dynamic SGS market, which is essential for fostering corporate and retail debt markets. The SGS market serves as a reliable benchmark for private debt securities and provides robust yields for pricing. It is also instrumental in meeting the liquidity demands of financial institutions as Singapore’s financial sector continues to expand.
Fiscal Considerations
The issuance of government securities and T-bills will not be used for government spending. Singapore’s government maintains an AAA credit rating and does not borrow to fund recurrent spending, thus preventing an undue financial burden on future generations. Only a small portion of government borrowing is allocated to infrastructure projects, under the Significant Infrastructure Government Loan Act (Singa), which has a separate issuance limit.
Chee Hong Tat emphasized that the proposed increase will not impact the government’s fiscal position, as Singapore’s assets continue to outweigh its debts. The country’s net investment returns from its reserves are utilized for government spending, reinforcing the financial stability of the nation.
